Question

On January 1, 2017, Alpha Company purchased a significant influence shares investment in the Bravo-Zulu Company for $250,000. This investment balance represents 25% of the equity of the Bravo-Zulu Company. During 2017, Bravo-Zulu Company reported Net Income of $25,000 on November 15, 2017 Bravo-Zulu Company paid cash dividends of $10,000 to its shareholders. Using this information, what are the FY 2017 balances in Alpha Company's account balances for: a. Investment in Bravo-Zulu b. Investment Income

Answer 1

Answer:

a) $253,750

b) $6,250

Explanation:

Alpha company purchased shares in Bravo-Zulu company for $250,000

This represents 25% of the equity of Bravo-Zulu company.

In 2017, Bravo-Zulu Company Net Income = $25,000 on November 15, 2017 Bravo-Zulu Company paid cash dividends of $10,000 to its shareholders.

The FY 2017 balances in Alpha Company's account balances are:

a) For investment in Bravo-Zulu

= $250,000 + net income - share in dividend.

= $250,000 + ($25,000 * 25%) - ($10,000 * 25%)

= $250,000 + $6,250 - $2,500

= $253,750

b) For investment income

= $25,000 * 25%

= $6,250